Iradimed Corp: Form 10-Q for the period ended Sep 30, 2023

The following discussion and analysis should be read in conjunction with our condensed financial statements and the related notes to those statements included in this Quarterly Report, the discussion of certain risks and uncertainties contained in Part II, Item 1A of this Quarterly Report, the discussion under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” included in our Annual Report filed on Form 10-K for the fiscal year ended December 31, 2022 and the cautionary information regarding forward-looking statements at the beginning of this Quarterly Report.

Our Business

We develop, manufacture, market and distribute MRI compatible medical devices and accessories, disposables and services relating to them.

We are a leader in the development of innovative MRI compatible medical devices. We are the only known provider of a non-magnetic intravenous (“IV”) infusion pump system that is specifically designed to be safe for use during MRI procedures. We were the first to develop an infusion delivery system that largely eliminates many of the dangers and problems present during MRI procedures. Standard infusion pumps contain magnetic and electronic components which can create radio frequency interference and are dangerous to operate in the presence of the powerful magnet that drives an MRI system. Our patented MRidium® MRI compatible IV infusion pump system has been designed with a non-magnetic ultrasonic motor, uniquely designed non-ferrous parts and other special features to safely and predictably deliver anesthesia and other IV fluids during various MRI procedures. Our pump solution provides a seamless approach that enables accurate, safe and dependable fluid delivery before, during and after an MRI scan, which is important to critically ill patients who cannot be removed from their vital medications, and children and infants who must generally be sedated to remain immobile during an MRI scan.

Each IV infusion pump system consists of an MRidium® MRI compatible IV infusion pump, non-magnetic mobile stand, proprietary disposable IV tubing sets and many of these systems contain additional optional upgrade accessories.

Our 3880 MRI compatible patient vital signs monitoring system has been designed with non-magnetic components and other special features to safely and accurately monitor a patient’s vital signs during various MRI procedures. The IRADIMED 3880 system operates dependably in magnetic fields up to 30,000 gauss, which means it can operate virtually anywhere in the MRI scanner room. The IRADIMED 3880 has a compact, lightweight design allowing it to travel with the patient from their critical care unit to the MRI and back, resulting in increased patient safety through uninterrupted vital signs monitoring and decreasing the amount of time critically ill patients are away from critical care units. The features of the IRADIMED 3880 include: wireless ECG with dynamic gradient filtering; wireless SpO2 using Masimo® algorithms; non-magnetic respiratory CO2; invasive and non-invasive blood pressure; patient temperature, and optional advanced multi-gas anesthetic agent unit featuring continuous Minimum Alveolar Concentration measurements. The IRADIMED 3880 MRI compatible patient vital signs monitoring system has an easy-to-use design and allows for the effective communication of patient vital signs information to clinicians.

We generate revenue from the sale of MRI compatible medical devices and accessories, extended warranty agreements, services related to maintaining our products and the sale of disposable products used with our devices. The principal customers for our MRI compatible products include hospitals and acute care facilities, both in the United States and internationally. As of September 30, 2023 our direct U.S. sales force consisted of 28 field sales representatives, 3 regional sales directors and supplemented by 5 clinical application specialists. Internationally, we have distribution agreements with independent distributors selling our products.

Selling cycles for our devices have varied widely and have historically ranged between three and nine months in duration. We also enter into agreements with integrated delivery health systems and healthcare supply contracting companies in the U.S. Our agreements with healthcare supply contracting companies enable us to sell and distribute our products and services to their member hospitals. Under these agreements, we are required to pay these group purchasing organizations (“GPOs”) a fee of three percent of the sales of our products to their member hospitals.

Financial Highlights

For the third quarter ended September 30, 2023, our revenue increased $3.1 million, or 23.1 percent, to $16.5 million, compared to $13.4 million for the third quarter last year. Income before the provision for income taxes was $6.4 million for the third quarter 2023, compared to $4.2 million for the third quarter last year. Net income was $5.1 million, or $0.40 per diluted share in the third quarter ended September 30, 2023, compared to $3.4 million, or $0.27 per share in the third quarter last year.

For the remainder of 2023, we expect higher revenue when compared to the same period in 2022 due to higher sales of our medical devices, related accessories, disposables, and services. We also expect higher operating expenses compared to the same period in 2022 primarily due to higher sales and marketing, regulatory, and general and administrative expenses.

Application of Critical Accounting Policies

We prepare our financial statements in conformity with generally accepted accounting principles (“GAAP”). The preparation of these financial statements requires us to make estimates and use assumptions that affect the reported amounts of assets, liabilities, and related disclosures at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

We believe revenue recognition, accounts receivable, allowance for doubtful accounts, inventory valuation, product warranties, stock compensation, and income taxes are critical accounting policies requiring the use of significant estimates, assumptions, and judgments.

These critical accounting policies are described in more detail in our Annual Report filed on Form 10-K, under Management’s Discussion and Analysis and Results of Operations. Except as disclosed in Note 1 to the unaudited condensed financial statements contained herein related to the adoption of recent accounting pronouncements, there have been no changes to these policies during the nine months ended September 30, 2023.

The use of different estimates, assumptions, and judgments could have a material effect on the reported amounts of assets, liabilities, and related disclosures as of the date of the financial statements and revenue and expenses during the reporting period.

Results of Operations

The following table sets forth selected statements of operations data as a percentage of total revenue for the periods indicated. Our historical operating results are not necessarily indicative of the results for any future period.

Three and Nine months Ended September 30, 2023 and 2022

Revenue by Geographic Region

(unaudited)

(unaudited)

Revenue by Type

(unaudited)

(unaudited)

For the three months ended September 30, 2023, revenue increased $3.1 million, or 23.1 percent, to $16.5 million from $13.4 million for the same period in 2022. This is attributed to pricing adjustments made to absorb raw material and other production cost increases, continued robust demand for our Patient Vital Signs Monitor, disposable sales, and the release of our Ferro Magnetic Detection System.

Revenue from sales in the U.S. increased $3.1 million, or 29.0 percent, to $13.9 million for the third quarter 2023, from $10.8 million for the third quarter 2022. Revenue from sales internationally was unchanged in the third quarter 2023, consistent with the $2.6 million for the third quarter 2022. Domestic sales accounted for 84.5 percent of revenue for the third quarter 2023, compared to 80.6 percent for the third quarter 2022.

Revenue from sales of devices increased $2.4 million, or 24.7 percent, to $11.8 million for the three months ended September 30, 2023, from $9.4 million for the same period in 2022.

Revenue from sales of our disposables, service and other increased $0.8 million, or 23.6 percent, to $4.2 million for the three months ended September 30, 2023, from $3.4 million for the same period in 2022. Revenue from the amortization of extended warranty agreements was consistent at $0.5 million for the three months ended September 30, 2023 and 2022.

For the nine months ended September 30, 2023, revenue increased $9.7 million, or 25.2 percent, to $48.1 million from $38.4 million for the same period in 2022. This is attributed to the demand increases in our Patient Vital Signs Monitor, and disposable sales as well as the release of our Ferro Magnetic Detection System.

Revenue from sales in the U.S. increased $7.3 million, or 23.0 percent, to $38.9 million for the nine months ended September 30, 2023, from $31.6 million for the same period 2022. Revenue from sales internationally increased $2.4 million, or 35.1 percent, to $9.2 million for the nine months ended September 30, 2023, from $6.8 million for the nine months ended September 30, 2022. Domestic sales accounted for 80.8 percent of revenue for the third quarter 2023, compared to 82.2 percent for the nine months ended September 30, 2022.

Revenue from sales of devices increased $6.5 million, or 24.2 percent, to $33.2 million for the nine months ended September 30, 2023, from $26.7 million for the same period in 2022.

Revenue from sales of our disposables, service and other increased $3.3 million, or 32.5 percent, to $13.5 million for the nine months ended September 30, 2023, from $10.2 million for the same period in 2022. Revenue from the amortization of extended warranty agreements was consistent at $1.5 million for the nine months ended September 30, 2023 and 2022.

Cost of Revenue and Gross Profit

For the three months ended September 30, 2023 and 2022, cost of revenue increased $0.8 million, or 28.0 percent to $3.7 million from $2.9 million for the same period 2022. Gross profit increased $2.3 million, or 21.8 percent, to $12.8 million for the third quarter 2023 from $10.5 million for the same period in 2022. Gross profit margin was 77.8 percent for third quarter 2023, compared to 78.6 percent for the third quarter 2022. The decrease in gross profit margin is primarily due to an unfavorable overhead variance, sales mix, and increased raw material costs.

For the nine months ended September 30, 2023, cost of revenue increased $3.0 million, or 35.7 percent, to $11.4 million from $8.4 million for the same period last year. Gross profit increased $6.6 million, or 22.2 percent, to $36.7 million for the nine months ended September 30, 2023 from $30.1 million for the same period in 2022. Gross profit margin was 76.4 percent for nine months ended September 30, 2023, compared to 78.2 percent for the same period in 2022. The decrease in gross profit margin is primarily due to variable geographic sales and product mix, increased raw material costs, movement of new product inventory parts and overhead variances. Also attributing to the reduction in gross profit margin is international revenue as a percentage of total revenue which increased to 19.2 percent from 16.9 respectively for the nine months ended September 30, 2023 and 2022.

Operating Expenses

General and Administrative

For the three months ended September 30, 2023, general and administrative expense increased $0.7 million, or 25.5 percent, to $3.6 million from $2.9 million for the same period last year. This increase is primarily due to higher regulatory, legal and professional expenses, and increased payroll and benefit expenses.

For the nine months ended September 30, 2023, general and administrative expense increased $2.8 million, or 35.6 percent, to $10.8 million from $8.0 million for the same period last year. This increase is primarily due to higher regulatory, payroll and benefits expenses, and legal and professional expenses.

Sales and Marketing

For the three months ended September 30, 2023, sales and marketing expense decreased $0.17 million, or 5.7 percent, to $2.9 million from $3.0 million for the same period last year. This decrease is primarily due to lower sales commissions, offset by sales activities expenses, and payroll and benefits expenses.

For the nine months ended September 30, 2023, sales and marketing expense decreased $0.20 million, or 2.2 percent, to $8.8 million from $9.0 million for the same period last year. This decrease is primarily due to lower sales commissions, offset by sales activities expenses, and payroll and benefits expenses.

Research and Development

For the three months ended September 30, 2023 and 2022, research and development expense decreased $0.04 million, or 8.0 percent to $0.45 million from $0.49 million for the same period last year. This is primarily due to no longer allocating recently approved product parts related to the next generation pump to research and development. These approved parts are now included in raw material inventory.

For the nine months ended September 30, 2023, research and development expense increased $0.5 million, or 32.0 percent, to $2.2 million from $1.7 million for the same period last year. This is primarily due to increased payroll and benefit expenses offset by no longer allocating recently approved product parts related to the next generation pump to research and development.

Other Income, Net

Other income, net consists of interest income, foreign currency gains and losses, and other miscellaneous income. For the three months ended September 30, 2023, other income, net increased $0.4 million, to $0.5 million from $0.1 million for the same period last year. This increase is due to higher interest rates earned by money market fund investments that comprise a significant portion of our cash balances.

For the nine months ended September 30, 2023 and 2022, we reported other income, net, of $1.2 million and $0.01 million. The change is primarily due to higher interest rates earned by money market fund investments.

Income Taxes

For the three and nine months ended September 30, 2023, we recorded a provision for income tax expense of $1,341,352 and $3,403,523 respectively. Our effective tax rate was 20.9 percent and 21.2 percent respectively and differed from the U.S. Federal statutory rate primarily due to U.S. state income tax expense, partially offset by benefits from foreign derived intangible income and research and development tax credits.

For the three and nine months ended September 30, 2022, we recorded a provision for income tax expense of $810,375 and $2,322,30 respectively. Our effective tax rate was 19.1 percent and 20.2 percent respectively and differed from the U.S. Federal statutory rate primarily due to U.S. Federal income tax expense partially offset by benefits from foreign derived intangible income and research and development tax credits.

As of September 30, 2023, and December 31, 2022, we had not identified or accrued for any uncertain tax positions. We are currently unaware of any uncertain tax positions that could result in significant payments, accruals or other material deviations in this estimate over the next 12 months. We believe that our tax positions comply in all material respects with applicable tax law. However, tax law is subject to interpretation, and interpretations by taxing authorities could be different from ours, which could result in the imposition of additional taxes and penalties.

We file tax returns in the United States Federal jurisdiction and many U.S. state jurisdictions. Our returns are not currently under examination by the Internal Revenue Service. The Company remains subject to income tax examinations for our United States Federal and certain U.S. state income taxes for 2019 and subsequent years.

Liquidity and Capital Resources

Our principal sources of liquidity have historically been our cash and cash equivalents balances, cash flow from operations and access to the financial markets. Our principal uses of cash are operating expenses, working capital requirements, capital expenditures and dividend payments, if any.

As of September 30, 2023, we had cash and cash equivalents of $46.7 million, stockholders’ equity of $74.6 million, and working capital of $64.0 million. As of December 31, 2022, we had cash and investments of $57.9 million, stockholders’ equity of $73.7 million, and working capital of $68.9 million.

We believe that our current cash, and any cash generated from operations will be sufficient to meet our ongoing operating requirements for at least the next 12 months. We have acquired land from an unrelated party and plan to make subsequent improvements thereon in the next two years to accommodate our increased operations and expand capacity. We anticipate using available cash for that investment in our future growth. We do not anticipate requiring additional capital; however, if required or desirable, we may seek to obtain a credit facility, raise debt, or issue additional equity in private or public markets.

Cash provided by operating activities increased $2.6 million, to $9.6 million for the nine months ended September 30, 2023, compared to $7.0 million for the same period in 2022. During the nine months ended September 30, 2023, cash provided by operations was negatively impacted by cash outflows related to income tax payments, inventory purchases, and collection of accounts receivable.

Cash used in investing activities increased $6.5 million, to $7.4 million for the nine months ended September 30, 2023, compared to $0.9 million for the same period in 2022. During the nine months ended September 30, 2023, cash used in investing was primarily the result of the $6.2 million land purchase to be used for future manufacturing, research lab and office space.

Cash used in financing activities increased $0.9 million, to $13.4 for the nine months ended September 30, 2023, compared to approximately $12.5 for the same period in 2022. In both periods, the company paid special dividends to our shareholders.

We market our products to end users in the U.S. and to distributors internationally. Sales to end users in the U.S. are generally made on open credit terms. Management maintains an allowance for potential credit losses.

Our current manufacturing and headquarters facility has been leased from Susi, LLC, an entity controlled by our Chairman of the Board and Chief Executive Officer, Roger Susi. Pursuant to the terms of our lease, the monthly base rent is $34,133, adjusted annually for changes in the consumer price index.

Off-Balance Sheet Arrangements

As of September 30, 2023 and December 31, 2022, we did not have any off-balance sheet arrangements, as such term is defined under Item 303 of Regulation S-K, that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Contractual Obligations

There have been no material changes outside the ordinary course of business to our contractual obligations and commercial commitments since December 31, 2022.

Recent Accounting Pronouncements

See Note 1 to the unaudited condensed financial statements contained herein for a full description of recent accounting pronouncements including the respective expected dates of adoption and status of evaluation of expected effects on results of our operations and financial condition.

Foreign Currency Exchange Risk

We have foreign currency risks related to our cost of revenue denominated in currencies other than the U.S. Dollar, principally the Japanese yen (“Yen”). The volatility of the Yen depends on many factors that we cannot forecast with reliable accuracy. We have experienced and will continue to experience fluctuations in our net income as a result of transaction gains and losses related to revaluing Yen denominated accounts payable balances. In the event our Yen denominated accounts payable or expenses increase, our operating results may be affected by fluctuations in the Yen exchange rate. If the U.S. Dollar uniformly increased or decreased in strength by 10 percent relative to the Yen, our net income would have correspondingly increased or decreased by an immaterial amount for the three and nine months ended September 30, 2023 and 2022.

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are designed to ensure that: (1) information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms; and (2) such information is accumulated and communicated to management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.

Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2023. Our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures as of September 30, 2023 were effective.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

We operate in a rapidly changing environment that involves a number of risks that could materially affect our business, financial condition or future results, some of which are beyond our control. The occurrence of any of these risks could harm our business, financial condition, results of operations and/or growth prospects or cause our actual results to differ materially from those contained in forward-looking statements we have made in this report and those we may make from time to time. In evaluating the Company and its business, you should carefully consider the information included in this Quarterly Report on Form 10-Q and the factors discussed under Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as well as in other documents we file with the SEC. Except as described below, there have been no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.